The Laugh Box is a part of a sea creature's body which allows them to laugh. It is Squidward who says to SpongeBob would break his laugh box if he didn't stop laughing. That would then cause him to never laugh again, although Squidward does not know this is true.
After SpongeBob laughs too much and the effects come true, he is convinced that he will never laugh again. Then, Squidward told him that a laugh box never existed. The two then started laughing uncontrolably, and Squidward broke his laugh box. In the hospital, he discovered that SpongeBob transferred his Laugh Box to him so he could laugh. He begins to laugh like SpongeBob. So far, the Laugh Box has only been mentioned in the episode Funny Pants.